Over the last couple of weeks, rumors have been flying about what’s happening over at Xbox. Microsoft’s console division has been hurting something fierce. When news broke that the company was increasing Xbox prices again, it wasn’t a good sign. But the writing was on the wall even before that. The Xbox brand has been in a bad way for a while. At some point in time, something had to break. That happened today with the laying off of 3,200 people from Xbox.
The CEO Speaks
That number would be large for any corporation or division. For Xbox, it’s reportedly 20% of its staff. Xbox’s CEO, Asha Sharma, inherited a growing mess from the previous executive officer, Phil Spencer. In the email she sent out today, she stated:
“Our business today is not healthy. We are operating at margins that are 3–10x lower than comparable platform and publishing businesses. We entered Gen 9 with a smaller install base and a higher cost structure. To grow, we bet on Game Pass, multi-platform, and a broader portfolio of content. While those businesses have created meaningful value, they did not grow at the pace we expected. As that happened, our core business weakened, and we added more teams, more investment, and more time, hoping for a better outcome. And now the industry is facing the most severe hardware crisis in its history. We must reset XBOX.”
There are elements of this which are absolutely true. Xbox’s install base has continued to shrink over the years. The Xbox Series X/S line has significantly fewer sales than its competition. How much fewer? It’s hard to say because Microsoft stopped sharing official sales figures. Keep in mind, this is not something you do when you’re proud of your sales. Sharma is also correct that bets were placed on Game Pass and multi-platform efforts. She doesn’t state that Game Pass undermined their own exclusive titles, and the multi-platform push happened too late to be of help to them.
Studio Closures at Xbox
What didn’t help matters beyond this is how Microsoft bought up and wasted the talents of various studios. This is why we’re seeing them part ways with various acquisitions. We’ll break them down.
Double Fine
Known for titles like Psychonauts and Brutal Legend, Double Fine has always existed as more of a prestige studio than a sales-driven one. Their output over the last several years has consisted of smaller titles and remasters of older games. Since their acquisition by Xbox in 2019, they’ve released three games. Keeper, Kiln, and Psychonauts 2. If you’ve never heard of Keeper and Kiln, you’d be forgiven since they were given absolutely no marketing push by Microsoft. It’s almost as if Xbox bought them solely for Psychonauts 2 and promptly forgot about them. Double Fine has been let go to try to function independently or find another buyer.
Compulsion Games
You can count the number of games this studio has released on one hand. Contrast, We Happy Few, South of Midnight. Only the latter of these was developed and released while under Xbox Game Studios. South of Midnight received critical praise for its art direction and atmosphere, but the gameplay was a bit more mixed. These were similar traits shared by We Happy Few, though South of Midnight was arguably a step up with its vivid depiction of the Southern United States. Still, one game in eight years of ownership again makes you wonder what the hell Xbox was doing with this company. They have also been let go to function independently or find another buyer.
Ninja Theory
While they had made games leading up to 2017’s Hellblade: Senua’s Sacrifice, that was the game that put them on the map. It was presumably the game that made Xbox keen on purchasing them. That happened in 2018. Since then, the company has produced a poorly received MOBA game called Bleeding Edge in 2000 and Senua’s Saga: Hellblade II in 2024. Hellblade II received strong reviews, but coming out seven years after the original certainly didn’t help it capitalize on its positive buzz. The developer has another title coming out, Senua. Because of this, the company has reportedly “entered terms to join new ownership” to complete the game. Its fate beyond that remains up in the air.
Undead Labs
The developer has worked exclusively on the State of Decay series, with the last title coming out back in 2018. State of Decay 2 did receive steady updates throughout its life cycle. Still, the follow-up, State of Decay 3, is finally on its way for a release in 2027. That’s a hell of a long development cycle with no other games in the pipeline. Like Ninja Theory, Undead Labs entered into terms for new ownership to see the upcoming game get to the finish line. After that, who knows?
Arkane and the Future of Xbox
There’s also the more complicated subject of Arkane Studios. The company that brought us the Dishonored franchise, along with 2017’s Prey, 2021’s Deathloop, and the more recent flop that was Redfall. Arkane is owned by ZeniMax and was acquired by Microsoft/Xbox along with Bethesda Softworks. There used to be two divisions of Arkane, but the Austin team was closed due to Redfall‘s failure. The remaining branch in Lyon, France, is developing a videogame based on Marvel’s Blade. It is currently undergoing “consultation” to determine its fate.
Reviewing the portfolios of these companies, it’s not surprising that Microsoft is cutting them. What’s the point in owning them if they’re not making games? Of course, that begs the question, why did Xbox acquire these studios in the first place if they weren’t going to have them make things? It’s a complete mismanagement of resources and not the fault of the studios themselves. The layoffs aren’t just affecting these developers. People have been let go from teams that are still with Microsoft and Xbox as well, including the aforementioned ZeniMax/Bethesda and Blizzard/Activision.
While not stated outright, it’s pretty clear that the AI boom is a part of this. Tech companies are trying to go all in on Artificial Intelligence and shifting resources towards it. In the case of Microsoft, it means further developing AI and further implementing it where it can reduce the workforce. This is a virtual bloodbath of laborers, but we predict it won’t stop the bleeding. With console price increases and a lack of notable games on the horizon, what does Xbox really have to offer? The upcoming Project Helix just won’t be enough to pull them out of this hole.
Our hearts go out to all of those impacted by these layoffs.
